Jan

17

Employees of FIAT, the Italian auto-maker, voted for the investment in the Mirafiori plant in Turin in exchange for measures to limit strikes and curtail absenteeism.

Today, productivity in this plant is about one third of productivity in a similar plant that FIAT has in Poland. At the same time in China inflation and the increase in salaries are a predominant theme. Global imbalancies are going to be coped with in 2 ways in the long term.

On one hand, if western countries want to remain (or become?) competitive they have to realize that the current labor conditions should be revisited. There is obvious resistance, but the agreement at FIAT (in Italy unions are strong) shows that this is the only sensible way ahead although it can be very painful. Workers are starting to realize that unemployment is the alternative to renegoniating their contracts as entrepreneurs move their plants abroad.

On the other hand production costs are increasing in emerging markets. This trend is accelerating and this convergence will continue to unfold over the next years. The problem is we could import higher prices without being able for quite some time to print significant growth rates (especially in Europe).